The United States Senate Committee on Banking, Housing, and Urban Affairs hosted a hearing today, July 30, 2019, on cryptocurrency and blockchain regulation. This is the third in a recent spate of cryptocurrency-specific hearings in Congress, which began two weeks ago with Libra’s rounds in both the U.S. House of Representatives and the Senate.
Libra’s hearings were notably longer than today’s (two hours and 18 minutes in the Senate and six and a half in the House). Politicians punctuated these sessions with worries over Facebook’s past privacy and data scandals. If Facebook can’t keep our data safe — and moreover, if we can’t trust what it says compared to what it actually does with this data — then why should regulators trust something like Libra with monetary policy?
Within the spectre of these pervasive fears, Bitcoin looked good by comparison.
Regulating the Inevitable
Today’s hearing played out like a follow-up to some of Congress’ broader queries on cryptocurrency during the Libra discussions. Legislators grilled three panelists — Circle’s CEO Jeremy Allaire; University of California at Irvine School of Law professor Mehrsa Baradaran; and Congressional Research Service specialist Dr. Rebecca Nelson — on topics which largely honed in on fostering proper cryptocurrency regulation, as well as the benefits (and obstacles) that blockchain technology presents as a burgeoning disruptive technology.
The discussion yet again widened conversational avenues on the difference between Bitcoin and Libra, and even the difference between Bitcoin and the thousand-asset deep crypto industry it spawned.
“Facebook’s Libra project has generated renewed interest in digital currencies and blockchain generally,” Committee Chair Mike Crapo said in his opening remarks. “Though while Libra may have started this conversation, the blockchain and cryptocurrency system is diverse. It seems to me that this technology and other digital innovations are inevitable. They could be beneficial, and I believe the U.S. should lead in their development. That can’t happen without clear rules of the road.”
As such, Senator Crapo showed specific interest in how cryptocurrencies “interact within the U.S. and international regulatory frameworks,” as well as the myriad varieties of cryptocurrencies and “their difference between Facebook’s proposed digital currency.”
In the Interest of the “Public Good”
Following these remarks, ranking member Sherrod Brown, who lobbed especially hard-hitting and skeptical questions at Libra’s David Marcus over Facebook’s project, reiterated his conviction that monetary policy is too precious to centralize in the hands of the Silicon Valley elite.
Harkening back to the 50th anniversary of the Apollo 11 moon landing, he said in his opening remarks, “These Americans didn’t do it for profit. They did it to serve their country, and their success was shared by every American … It’s a reminder that some infrastructure works better as [a] public good, and we shouldn’t let banks and big corporations control it.”
Perhaps inadvertently, the senator’s remarks echo Meltem Demirors’ comments before the House on an experts panel after the Libra hearing, wherein she espoused the view that Bitcoin is a public good, with its free-and-open-source nature lending itself to anyone who wishes to access it.
“Is it any wonder that, as so many people lost trust in the system, they enthusiastically embraced Bitcoin, a new alternative, non-sovereign currency introduced on the heels of the crisis to respond to the financial system?”
Hitting on this feature in her opening statement, Professor Baradaran asked, “Is it any wonder that, as so many people lost trust in the system [following the Great Recession], they enthusiastically embraced Bitcoin, a new alternative, non-sovereign currency introduced on the heels of the crisis to respond to the financial system?”
As an academic who focuses on financial inclusion, though, Baradaran doesn’t buy into Bitcoin’s promise to bank the unbanked. It’s the existing policies, she believes, and not the technology, that is under-serving financially disenfranchised communities.
The Perennial Call for Regulatory Clarity
Still, the industry itself needs clearer policies and regulation, Allaire believes, as he called on "Congress [to] adopt national policies that define and establish digital assets as a new asset class."
Senator Crapo said that, given the richness and complexity of the ecosystem, it can be hard to differentiate between cryptocurrencies to create the proper framework. Bitcoin as a digital commodity, for example, is a different egg than a security token or something like libra. He asked Allaire directly how regulators should approach crypto’s many iterations.
Allaire re-emphasized that the one-size-fits-all-approach won’t work.
“It’s every easy when one hears about bitcoin or libra to assume this is all the same stuff,” Allaire said. “So I think one of the first things for regulators and policy makers is to distinguish between the digital assets that are emerging.”
He added that regulation around custody is imperative in response to cyber threats.
“Many of these digital assets do not easily fit classifications that we have in our financial system,” he would later respond, when Senator Crapo asked if lack of regulatory clarity recently prompted Poloniex, a subsidiary of Circle, to move its office overseas to Bermuda.
Taking Business Elsewhere
That the United States’ regulatory climate is comparatively cooler than other countries’, like Switzerland’s, became a hot topic during the discussion.
“Do you agree that cryptocurrencies are leaving the U.S.?” Senator Jon Tester asked Nelson.
“It’s certain that other jurisdictions are ahead of the United States to become cryptocurrency hubs … they are using regulations to attract cryptocurrencies to their borders … not necessarily increased regulation but clarity over regulation,” she responded, making the point that many of these hubs have specific regulations in place to monitor one of Capitol Hill’s greatest concerns: money laundering.
Chairman Crapo would follow up on Tester’s comments, asking Nelson to delineate which countries furnish “accommodating” cryptocurrency regulation and the defining features of such regulation. She cited Switzerland’s clear ICO guidance as these tokens relate to securities regulations, anti-money laundering protections and guidelines for incorporating in the country as a crypto company.
What Have We Learned?
Underscoring all of this talk, a few senators as well as Baradaran in particular raised concerns over concentrating monetary policy in the hands of the tech sector. Honing in overwhelmingly on the threat of Facebook’s Libra, Senator Brown, for instance, likened big tech’s aversion to regulation to Wall Street’s own avoidance. Lax regulation, he added, did little to tame the economically destructive interests of these institutions leading up to the Great Recession.
“What’s happening in the crypto market, a lot of these companies just want to create an alternate to the U.S. dollar,” Baradaran said in one of her responses to Senator Brown. “I can’t imagine this body would want to delegate that money-making authority to the private market.”
There’s an undercurrent of irony in remarks like these and of Senator Brown’s own, which either focus on big tech crypto companies as a point of principle or ignore the differences between public, permissionless projects like Bitcoin (which have no figurehead) and private efforts like Libra. Bitcoin is not a corporation, and to the extent that we may view it as a public good, labelling its market as a private one, while it exists in the private sector, runs the risk of lumping it into corporate efforts to create a new currency.
Getting a Handle on Bitcoin’s Potential
Though Senators heeded Allaire’s caution to distinguish between different coins and projects in the crypto arena, the Senate, unlike the House in its Libra hearing, was not particularly explicit in distinguishing between bitcoin and its competitors.
However, certain members like Chairman Crapo showed an implicit understanding that a true decentralized cryptocurrency like bitcoin carries a heftier regulatory significance than a centralized digital currency.
“If the U.S. were to decide — and I’m not saying we should — we don’t want cryptocurrency in the U.S., let’s ban it,” Crapo said. “I’m pretty confident that we couldn’t do that because this is a global phenomenon.”
Adjourning the meeting, he closed on a note of optimism and agency for the U.S. government’s future approach to this burgeoning field of technology.
“This is obviously a very critical issue. I want the U.S. to stay at the forefront … of this new creative technology. I do believe that it has some incredible potential that can be utilized for good and has some incredible risk that can be utilized for bad. and we just need to get a handle on that.”